July 2011

Today I strolled through my childhood neighborhood. Northridge, California. When I passed by the corner house that a barber owned long ago, I imagined the following dialog: Stagnationist: So the world just keeps getting better and better, eh? Well let... MORE

In his semi-farewell column, David Leonhardt writes, we know that a market economy with a significant government role is the only proven model of success I think that the growth of the Internet since 1994 (when the U.S. government turned... MORE

Then there's the issue of off-label promotion. A drug's "label" is the drug's FDA-approved prescribing information--those complicated package inserts that we've all seen. Any approved use is on-label, while any use not listed on the insert is considered off-label, even... MORE

Nick Schulz and I offer ideas, focused on the New Commanding Heights. imagine if state governments experimented by setting up healthcare enterprise zones. These would be areas where entrepreneurs could set up healthcare delivery systems without any rules concerning what... MORE

1. Hispanics have lost wealth proportionately more than whites. I think it is pretty easy to connect the dots between government policy to expand home ownership and this outcome. As I said at the Senate banking committee, buying a home... MORE

David Friedman's latest post is titled "Austrian Fantasy." It's well worth reading. In the post, David defends his father from Lew Rockwell's statement that the whole world is reading Murray Rothbard and that outside of mainstream economics, Milton "is almost... MORE

Tyler Cowen writes Of the world's share of AAA sovereign debt, we issue 59 percent of it. (Next is Germany with ten percent and then France with nine percent of the total.) You can read this a few ways: 1.... MORE

On his blog, "Conversable Economist," which, I agree with co-blogger Arnold, is excellent, Timothy Taylor gives an example of opportunity cost from Yale economist Shane Frederick: "While shopping for my first stereo, I spent an hour debating between a $1,000... MORE

It's short and so I'll quote the whole thing: One doesn't want to lean too heavily on human tragedies to make political points, but since a lot of our politics rightly concerns itself with how to minimize the occurrence of... MORE

Another worry about Moody's position is that the firm is frequently represented in the media by economists from Moody's Analytics, such as Mark Zandi. Moody's Analytics is a distinct subsidiary within Moody's Corporation from the rating issuing entity, Moody's Investors... MORE

Isabel Schnabel and Hyun Song Shin write (the same paper is also here), Shortly after the beginning of the Thirty Years War (1618-1648), the small German states and neighboring principalities that comprised the Holy Roman Empire experienced one of the... MORE

About this paper by Ilyana Kuziemko, and others. Why do low-income individuals often oppose redistribution? We hypothesize that an aversion to being in "last place" undercuts support for redistribution, with low-income individuals punishing those slightly below themselves to keep someone... MORE

Nick Rowe writes, the answer to the question "what is the effect of a 1% increase in perceived risk on government bonds?" is exactly the same as the answer to the question "what is the effect of a 1% increase... MORE

He writes, In particular, it's intriguing to brainstorm about certain kinds of jobs that are not extremely high on skills (not everyone is going to be a research scientist), but also aren't extreme low-wage jobs either. These would be jobs... MORE

Because nobody else can understand them, modern economists speak to one another. They gossip in algebra and remonstrate in differential calculus. And when the pungently correct mathematical equation doesn't occur to them, they awkwardly fall back on the English language,... MORE

Catherine Rampell writes, A college graduate at the 25th percentile makes $730 per week, which is still 13.5 percent more than the median high school grad. Here are the numbers, reproduced in tabular format. Earnings QuartileHigh School GradsSome CollegeCollege Grads75th... MORE

With the lonely exception of Scott Sumner, virtually every libertarian or conservative who has expressed a strong opinion about monetary policy has come down on the side of the inflation hawks. This is from Timothy B. Lee, "Why Are Libertarians... MORE

I've finished Manias, Panics, and Crashes, 5th edition. Some thoughts in addition to my previous ones (here and here). p. 55: The Kipper- und Wipperzeit [according to Wikipedia, translates to tipper and see-saw time] of 1619-1623...got its name from the... MORE

President Obama said in a recent interview with Scott Pelley of CBS News, "I cannot guarantee that those [Social Security] checks go out on August 3rd if we haven't resolved this issue [increasing the debt ceiling]. Because there may simply... MORE

Robert Fogel writes, Health care isn't a homogeneous good, all of which is essential. There are large luxury components that may appeal to some but that aren't necessary for sound basic care. It is, of course, necessary to provide medical... MORE

Dani Rodrik and Timothy Taylor both have posts, including charts, comparing growth in emerging economies with growth in developed economies. Rodrik (pointer from Mark Thoma) is writing about the past twenty years. For the first time ever, developing countries as... MORE

A puzzle inspired by last night's debate: Conservatives and libertarians were almost equally likely to praise "liberty." You'd think this shared value would facilitate a constructive dialog. But it didn't - not even for the subset of "economic liberty." Why... MORE

As expected, I greatly enjoyed last night's Libertarianism vs. Conservative Debate at Cato. I'm always impressed to see students publicly defend their cherished beliefs before hundreds of onlookers. I spent most of the Q&A mentally searching for constructive questions -... MORE

If I were writing a blurb for the fifth edition of Charles P. Kindleberger's classic Manias, Panics, and Crashes, I would say that "This is the best narrative that has been written about the 2008 financial crisis, and it was... MORE

Indeed, Krugman's presentation doesn't incorporate any of the more sophisticated arguments about the financial system of such old-line, hard-core Keynesians as James Tobin. He moreover completely ignores any possible complications arising from Ricardian Equivalence, essentially knocking down straw-men objections to... MORE

From my last post on Martorell and Clark:M&C have the best data set ever constructed for detecting ability bias. After all, they've got measures of years of education, earnings, and initial test scores - i.e. test scores before high school... MORE

Lots of brilliant people talking past each other. Lacking a common language for communication. Welcome to elite macroeconomics, circa 2011. The right doesn't think we need more NGDP [Nominal Gross Domestic Product] and the left doesn't understand that the Fed... MORE

Today, I attended this panel (the link already has an audio, so you can listen. I ask a question at one hour and 29 minutes in.) featuring Gara Lamarche, who I mentioned in this post. He was much more self-effacing... MORE

Christopher S. Foote and Paul S. Willen write, Specifically, the problem with the 2006 loans was not that this vintage included more loans with adjustable rates, zero down payments and reduced documentation (though it did). The problem with the 2006... MORE

He says, Look, the most rapidly growing sector of jobs over the last decade, and in the forecasts for the next decade, is health care, and education is in the top five. So we need to embrace that. We need... MORE

About the time the first edition came out, in 1978, I read it and also took a course from Charles Kindleberger. At the time, he was in his late 60s, and with his quavering voiced seemed even older. I wanted... MORE

Ian Fletcher responded to my last post as follows: You accuse me of wanting "the government to interfere in people's lives." I'd like to plead cheerfully 100% guilty as charged to that. Although a government that doesn't "interfere in people's... MORE

In Why Not?, Nalebuff and Ayres draw our attention to inventions that took forever to arrive but seem obvious in retrospect:Think about the innovation of one-way tolls or rolling luggage. Prewashed lettuce, the ultimate low-tech invention, has become a multibillion-dollar... MORE

The Institute for Humane Studies has put together instructional material on basic concepts related to libertarian thinking. One set of videos pertains to economics, and it has a very strong Austrian flavor. I have only watched a few of them.... MORE

John Taylor writes, In my view, rigidities exist in the real world and to describe accurately how the world works you need to incorporate such rigidities in your models, which of course Keynes emphasized. But you also need to include... MORE

I'm slowly working my way through the select group of empirical papers on signaling. One of the neatest so far: Paco Martorell and Damon Clark's 2010 working paper, "The Signaling Value of a High School Diploma." Background: There are quite... MORE

Christopher J. Conover writes, Between 1966 and 2007, the entire increase in the size of government relative to the economy resulted from growth in tax-financed health spending. If you have not read it already, you might want to look at... MORE

The Problem with the JCs Although I always read a whole book before I write a review of it [Exception: I reviewed the New Palgrave for Fortune after having read "only" about 300 of its 1,196 entries] and I usually... MORE

In a comment on this post, David Min writes, So if you want to say that Fannie and Freddie need major reforms because they took on an unacceptably high level of risk, particularly for taxpayer backed entities, welcome to the... MORE

Lacy Hunt writes, In 1933, Fisher held out some hope that fiscal policy might be helpful in dealing with excessive debt, but within several years he had completely rejected the Keynesian view. By 1940, Fisher had firmly stated to FDR... MORE

I appreciate a number of the comments people made on my previous post on my debate with Ian Fletcher, both the tone and the content. On tone, I want to highlight Tom West, whose tone I always appreciate. On content,... MORE

Douglas Elmendorf attempts to explain. spending on Social Security and the major health programs is projected to rise from 8.7 percent of GDP in 2007 to 12.2 percent in 2021 Republicans do not like that the Bowles-Simpson plan envisions spending... MORE

Some further points. 1. This article says OFHEO has identified as a benchmark the 30- year, fixed-rate mortgages originated in Arkansas, Louisiana, Mississippi and Oklahoma in 1983 and 1984, just before oil prices collapsed. During the first five to six... MORE

Phillip Swagel writes, The longer Fannie and Freddie stay in government hands, the more likely they will become permanent wards of the state. This would be the worst of possibilities, yet it becomes more likely as conservatives push for a... MORE

Tyler Cowen links to Brad DeLong who writes, Arnold Kling's response is simply not good. It is silly enough to make me think he has not thought the issues through. a 7% delinquency rate on a mortgage portfolio is horrible... MORE

After my article appeared in which I criticized Ian Fletcher's argument for more manufacturing in the United States, Fletcher responded by e-mail and we carried on a back-and-forth debate. It was pretty civil on both sides, something that, unfortunately, is... MORE

Journalists usually love a good debate. If there's one protectionist economist for every hundred free-traders, they'll still make an effort to "ask both sides." A glaring exception: Today's piece in The Guardian on the Beckham's fertility. The headline:Beckhams a "bad... MORE

Scott Sumner raises some challenging points. But the link between the housing bubble and the severe financial panic is much weaker than people realize. And the link between the severe financial panic and high unemployment in 2011 is almost nonexistent.... MORE

Pete Boettke on Cowen's The Great Stagnation:The Great Stagnation is a condemnation of government growth over the 20th century. It was made possible only by the amazing technological progress of the late 19th and early 20th century. But as the... MORE

In an effort to salvage a comatose credit market after the Lehman collapse, the Fed set the target rate for Fed funds - the funds that banks borrow from each other - at an extremely low 0.25 percent. Paying interest... MORE

Tracy Alloway writes, The turmoil of 2008 shunted some investors from ABS into safer sovereign debt, it's true. But you also had a plethora of incoming bank regulation to purposefully herd investors towards holding more government bonds, plus a glut... MORE

Almost everyone is incredulous at my pacifist opposition to so-called "defensive war." In last week's debate, Ilya Somin's case began with this supposedly clear-cut case of legitimate war. What could possibly be wrong with a country using military means to... MORE

I've set up the resource page for my recent "Liberty and Foreign Policy" debate with Ilya Somin, including the complete audio (now in mp3), my Powerpoint slides, and Somin's outline. Enjoy.P.S. Special thanks to Chris Baylor for organizing and handling... MORE

So, in this debate with commenters over stock returns vs. GDP growth, I may have to concede. The ratio of stock prices to GDP is P/Y. Assuming no dividends, that means that P/Y has to increase for stock returns to... MORE

Scott Sumner asks, So why does the banking crisis in 2008 cause low NGDP in 2011? Possible answers: 1. Because Reinhart and Rogoff say that financial crises cause pain for a long time. They don't have an explanatory model, but... MORE

My sons and I read some sad stories together. Most recently, we shared Maus, Art Spiegelman's transcendent graphic novel about how his father survived Holocaust. In the process, I've noticed something: My sons' preferred response to evil is always "fighting... MORE

Most of the media have done a worse job than usual of reporting on the debt ceiling/budget debate. Specifically, when one side or the other offers a deal, the media don't typically tell us when the budget cuts would come,... MORE

A question that came up at the Silver Diner after last night's debate:What fraction of police brutality could have been avoided if the victims has simply been respectful and submissive vis-a-vis the police?The question isn't intended to "blame the victim,"... MORE

David Min criticizes the analysis of Peter Wallison and Ed Pinto of the role played by Freddie Mac and Fannie Mae in the housing bubble. (Pointer from Mark Thoma.) The centerpiece of Min's critique is a chart that shows the... MORE

At Cato Unbound, He writes, Finally, consider next the many functions and roles of managers, both public and private. By being personally impressive, and by being identified with attractive philosophical positions, leaders can inspire people to work for and affiliate... MORE

People frequently try to refute my pacifism by merely saying "Hitler." "If only Britain and France had declared war and unseated Hitler when he occupied the Rheinland in 1936!" they say. My quick reply is, "Yes, but I've got a... MORE

Today I'm debating pacifism - another position I acquired in the process of blogging - with Ilya Somin at GMU's law school. My pacifist writings so far:1. Why libertarians should be pacifists, not isolationists.2. The common-sense case for pacifism -... MORE

Bracing diagnosis, disappointing prescription. Having finished Uncharitable, I have that capsule review. As I see the diagnosis, donors evaluate non-profits on criteria that are not related to results. The big one is "percentage of donations that go to the cause."... MORE

Tyler Cowen challenges me to engage "with the academic literature" on consumer surplus from the Internet. Fair challenge. First, before doing so, I'll point out that I found it a little strange that he referred critically to a post I... MORE

From Gara Lamarche: it is values that move people to enthusiasm and action, not more sterile concepts of metrics and results. Read the whole thing. Rarely do I encounter a piece that I disagree with so broadly and so deeply.... MORE

There is an argument for fiscal expansion, which is "unemployment is bad, and Republicans are bad for wanting to cut spending, especially when there is a lot of unemployment." However, if you want to change someone's mind, you need something... MORE

Oreopoulos and Salvanes's recent piece in the JEP begins with ample concessions to the signaling model of education:One issue is that schooling may help develop skills or it may help signal skills that individuals already have. If those with more... MORE

Last month, MIT economist Jonathan Gruber published an NBER Working Paper, "The Impacts of the Affordable Care Act: How Reasonable are the Projections?" WP No. 17168. Gruber points out in a footnote that he was a paid advisor to Governor... MORE

No, this is not Ron Paul who writes, The IMF's business model sabotages properly functioning capitalism, victimizing ordinary people while benefiting the elites. Do we need international agencies to enable irresponsible--verging on immoral--borrowing and lending? Instead of dreaming up too-clever-by-half... MORE

Uncharitable, by Dan Pallotta. Recommended by Amy Willis with regard to my discussion of nonprofits. So far (I am less than 1/4 through), the book says the following: 1. Organizations that seek to achieve charitable ends should be permitted to... MORE

Tyler Cowen writes, job creation from start-ups has been falling since the 1980s. He cites a paper by E.J. Reedy and Robert Litan. Once again, I want to point out that low job creation and stagnation are not the same... MORE

After my last post, I spent a while playing with the GSS's job satisfaction data. I tried adding a kitchen sink of regressors to education and log real income: IQ, age, year, race, sex, church attendance, political ideology. The negative... MORE

You will find me with her in the latest dead-tree issue of National Review. The cover story is on her surge in the Republican race for President. The author raises questions about her ability to execute a successful national campaign.... MORE

The WSJ reports, Energy Secretary Steven Chu came out swinging Friday against a House bill that would repeal a 2007 federal law effectively outlawing older forms of incandescent bulbs... "We are taking away a choice that continues to let people... MORE

I won't deny that there's a lot of interesting material in "Priceless: The Nonpecuniary Benefits of Schooling" (Oreopoulos and Salvanes 2011, Journal of Economics Perspectives). The theme, of course, is that the benefits of schooling go far beyond mere extra... MORE

A few days ago, I posted on a John Goodman post in which he asserted that he knows of no theory of justice that would imply that the Affordable Care Act, aka ObamaCare, is a good idea. There followed a... MORE

David French writes, In this category are all the things you do when a person typically thinks of "fighting poverty." Serve in a soup kitchen. Donate canned goods. Sponsor a child. Fight for the right candidates and public policies. Volunteer... MORE

You can now vote in Leah Libresco's religious Turing Test. Anyone care to predict the results? Propose a bet?Update: I just voted. Overall, amazingly credible answers - I suspect Leah is drawing heavily from ultra-sophisticated Ivy League Christians. The main... MORE

Les Christie puts together a scorecard for foreclosure prevention programs under the Obama Administration. The programs are all either huge disappointments or "too soon to tell." In December 2008, after Mr. Obama had won the election but before he took... MORE

New York. Associated Press. June 26 In the wake of last week's deadly shooting at a Long Island pharmacy, Sen. Charles Schumer says the federal government must work harder to fight prescription drug abuse. Schumer said Sunday that the abuse... MORE

Every few years, I have this argument with a new round of commenters. The ratio of stock prices to earnings is P/E. The ratio of earnings to GDP is E/Y. The ratio of stock prices to GDP is P/Y, which... MORE

Robin Hanson writes, It seems an especially bad idea for people to feel moral, without actually acting moral. He proceeds to talk about movies that allow us to feel moral by rooting for the good guy. But I was expecting... MORE

Would you give up the Internet for One Million Dollars? That's the title of a 5-minute YouTube video produced by the Fund for American Studies. There's a lot of good stuff packed into this video plus some apparently contradictory stuff.... MORE

Automatic enrollment appears to be a win-lose approach to changing 401(k) savings behavior. The win aspect is that automatic enrollment dramatically increases 401(k) participation, with particularly large effects among the groups who would otherwise tend to have the lowest participation... MORE

Posnerian quote of the day:Third-party payment is a pervasive feature of American medicine. Why anyone should want health insurance other than "major medical"--that is, insurance against catastrophic medical bills--is a great mystery, as is the fact that Medicare subsidizes routine... MORE

Christopher writes, imagine three axis [axes], one that runs from voluntary to coerced, one that runs from private means to public means, and one that runs from public ends to private ends. Now imagine three spheres: one tends towards voluntary,... MORE

I love immigrants. But I don't mind declining immigration when it's driven by catch-up growth. Here's the NYT on what happened in Mexico over the last decade:Per capita gross domestic product and family income have each jumped more than 45... MORE

Ilya Somin writes, Because California is extremely large and controls most of the warm-weather coastal territory on the West Coast, people have been willing to put up with a lot of bad policies for the opportunity to live there. Competitive... MORE

John Caskey writes In an ideal experiment, one would randomly grant payday loans to a group of applicants and randomly deny the loans as well as close substitutes to a similar group of applicants. One would then track indicators of... MORE

Megan McArdle points to this analysis of why public worker pensions are underfunded. Basically, seemingly innocuous assumptions about the rate of return are very unrealistic, and this leads to massive underfunding. Back in 2003, when many Republicans were pushing private... MORE

When people weigh the plausibility of the signaling model of education, they focus on the ease of on-the-job incompetence detection. If it only takes a couple of months to notice that a person's credentials overstate their performance, how important can... MORE

On his health policy blog this morning, John Goodman asks whether there's a moral case for the Affordable Care Act. The whole thing is worth reading. Some excerpts: Search the world's ethical codes and you will have a hard time... MORE

A commenter suggested, among other readings, Susan Rose-Ackerman: an organization that binds itself not to distribute its surpluses to owners may be trusted more by customers and donors unable to judge service quality directly... Second...The nonprofit form provides a weak... MORE

Summed up in a nutshell I'm giving a presentation at the Mont Pelerin Society meetings in Istanbul in October and I'm staying over a few days to see the country and visit former students. The Turkish students I've taught have... MORE

Books on start-ups (start-up porn?). Robert Cringely's Accidental Empires, which covers the pre-Internet personal computer boom. I re-read my own Under the Radar, which covers Web 1.0, as it were. Sarah Lacy's Once You're Lucky, Twice You're Good, which covers... MORE

Picking up some comments on this post: 1. Non-profit is just a tax status. 2. One thinks of non-profits serving the poor, with for-profits serving the affluent. On (1), I can see it for hospitals. When I go to a... MORE

On July 13, I'm debating pacifism with Ilya Somin at the GMU law school. (The debate's open to the public). Yet last weekend I declared war on four nests of yellowjackets on my property. I won, but one stinger pierced... MORE

Yesterday, I wrote the following letter to the Monterey Herald about a local incident that has created a lot of publicity: If reporter Julia Reynolds quoted Sheriff Miller correctly ("Rights Violated, Sergeant Claims," Herald, July 3), then Miller has made... MORE

On PSST, my former thesis adviser writes via snail mail, Obviously I don't have to be told that there are very many outputs and very many distinguishable inputs. A question arises whether aggregation of some degree is a last resort,... MORE

I am curious about the intuition that people have about non-profit work. The standard intuition is that going to work for a profitable company means that you are not serving people, only the profits of the company. On the other... MORE

Tyler Cowen writes, If you believe in the signaling theory, however, his marginal product is fairly low, much lower than the wage he will be paid. They will fire him. He'll come out a bit ahead, if he is not... MORE

He writes, Regulators then shifted to edicts requiring banks to maintain a specified capital cushion, thick enough to cover potential losses. This approach presupposes that bank assets and exposures can be accurately measured. In fact, the financial statements of mega-banks... MORE

I often annoy other economists by giving advice. "Economists are supposed to describe behavior, not change it," they insist. But they couldn't be more wrong. Economics is inherently advisory. Anytime an economist notices a discrepancy between (a) the world as... MORE

By writing this column. Unfortunately, with some exceptions, multilateral and bilateral agencies had incentives to continue lending even when recipient government actions destroyed any hope of economic growth. Sometimes donors and multilaterals gave aid and loans only because the function... MORE

Do you think that if the U.S. government doesn't take on more debt in August, it will have to raise taxes, cut spending, use the Ron Paul/Dean Baker solution of having the Federal Reserve Bank extinguish government bonds, or default... MORE

In my latest Freeman column, I take on Huffington Post author Ian Fletcher on his claim that the United States doesn't have enough manufacturing. Some excerpts from my article: To judge whether a sector of the economy is too small,... MORE

I've posted before on the TSA (here, here, here, here, and here.) I had some hope for a little assertion of federalism from Texas. The Texas legislature, after the U.S. Attorney John E. Murphy threatened that the TSA would ban... MORE

More interesting stuff from Melvin Konner's The Evolution of Childhood:In the Six Cultures Study child rearing and behavior were measured among five farming and herding societies (in Kenya, the Phillipines, Japan, India, and Mexico) and a New England town... There... MORE

The Washington Post has a long piece on foreclosure backlogs. For a solution, I favor the Canadian system, in which mortgage loans are recourse loans. That is, if the lender cannot recover the mortgage amount by selling the house, the... MORE

Even prior to the financial crisis, the median duration of unemployment was in severe recession territory. Now, it is through the roof. In manufacturing, it almost appears that employment and output are decoupled. Output can increase while employment declines... MORE

Vance Fried writes, Based upon the CELS and SHEEO studies, the real cost of undergraduate education could vary from $5,000 to $9,000 per year, depending on institutional characteristics. The rest of tuition is a markup over cost. He estimates the... MORE

Libertarian Anthony Gregory has written the best article I've read this year. I've been trying to decide what excerpts to paste in and I found myself wanting to paste the whole thing in. I'll restrain myself and use a few... MORE

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